From the IRS, with love…
November 8, 2011
Congratulations! You’ve been selected to be audited by the IRS! What should you expect? How bad will it be? What are your chances of being looked at? Here are some random thoughts and observations I have related to IRS audits.
Although statistics don’t show it (and most audits are about two-years-old), it seems as though audits of small business are up this year. Maybe audits are up in general as the government is under pressure to realize more revenues (I blogged about this at the local level back in September as well). I’ve had more clients be selected for audit in the last two years than the prior nine years combined!
If you are selected for an audit, you will be notified by a letter from the IRS. They usually want you to call to schedule a time to meet with them. Be cautious when making this call and scheduling a meeting time. They may ask for certain items of information that you may not want to provide. For instance, a client recently made this call and the IRS agent asked if he could get a copy of the client’s QuickBooks file. They are allowed to ask for this and you may be required to turn it over to them. However, you should take some precautions before doing so — including only providing data for the year being audited. So definitely proceed with caution.
The more common items I’ve seen reviewed in an audit include substantiation of automobile expenses, substantiation of meals and entertainment expenses, and reviews of advertising and marketing expenses. The IRS will want the transactions provided that make up your total deductions and may sometimes request receipts to back up the transactions.
We’ve had positive experiences in dealing with the IRS and limiting the amount of adjustments they make. Of course, the first key is accurate reporting from the very beginning. Once under audit though, cooperation and organization make things run much more smoothly. We do our best to provide information as clear and understandable as possible, drawing a bridge between all figures so that everything can be easily followed.
Hopefully you aren’t randomly selected for an audit. It’s no fun to have your business interrupted and likely incur costs to be represented. However if you are randomly selected for an audit, get your accountant involved from the very beginning and be cooperative to set things off on the right foot.